UK Finance reminds lending sector of obligations

Trade body UK Finance has issued a timely reminder to the mortgage lending sector of its obligations to borrowers struggling following the latest 0.5 per cent base rate rise.

David Postings, chief executive of UK Finance, says: “Lenders are ready to support customers who are feeling the strain from the rising cost of living. Over 80 per cent of homeowners are on fixed rate deals and will be protected from any immediate rise in mortgage repayments following the Bank Rate increase. Those customers who are due to come off their fixed rates later this year are, however, likely to face higher monthly repayments.

“Lenders are prepared to help anyone struggling with their mortgage payments. If you are worried about your finances, do get in touch with your lender early to discuss the options available. They have teams of experienced and understanding advisors who will develop a solution tailored to your individual circumstances. Making a call to your lender to discuss the options available will not impact your credit score.

“Importantly, the level of homeowners in arrears remains low, meaning that most households are able to keep up with their monthly payments.”

There was a mix of anger and inevitability to the response to the Bank’s latest base rate rise from across the broker and financial services community.

Will Rice, chief executive of residential mortgage lender Generation Homes, says: "The immediate impact of this hike will be to lenders’ standard variable rates, which react most often in proportion with the base rate increase. Lenders may boast that they’re not passing the entire increase along to their SVR customers, but unless they are passing along the benefit of those high interest rates to their savings customers, it’s all just lip service. Another SVR increase could put some households in serious financial difficulty.”

Hamish Anderson, CEO at the Cambridge-based global payments and forex provider Money Mover, adds: "To continue to increase base rates robotically seems like a futile act bordering on self-harm. The traditional economic rules are clear. You counter inflation by raising interest rates. This raises the cost of money, reduces consumer spending power and encourages suppliers to lower the cost of their products. However, it is a blunt instrument and the Bank is overlooking unique factors that mean the traditional rules do not apply. The drivers of inflation (the war in Ukraine, the impact of Brexit and Covid) are beyond the reach of the tools it has at its disposal. Raising interest rates in the UK will not cut the cost of fossil fuels or reduce the cost of trading with Europe."

Kevin Dunn, mortgage and protection adviser at Leicester-based financial planner and mortgage broker Furnley House has this to say: "The mortgage fixed rate markets seem to have already priced this in, so I would not expect any further great changes beyond what we have seen over the last month. Although clearly not welcome for mortgage holders, I believe this was the correct call, as the previous rate changes have had little effect on curbing inflation. The definition of insanity is do the same thing and expect a different outcome. Hopefully this means those in charge may be sane after all."

Mark Grant of Gloucester-based business broker The Business Finance Branch: "This … is another serious body blow to UK businesses. It will get passed on in full and immediately to commercial borrowers. Non-bank lenders will see their own funding costs increase, so the end business borrower will see their cost of borrowing increase more than 0.5 per cent. We see many clients using business finance to afford the upfront costs of taking on new work and opportunities. This rate increase will stifle productivity, growth and business confidence, in turn affecting GDP in the wider economy."

Michelle Lawson, director at Fareham-based broker Lawson Financial states: "The next decision is due 3rd August. If inflation and CPI remains unchanged between now and then we could see this rising further. Clearly what is being done isn't working so at what point does this stop and do the Bank of England and Government think of a change of tack?"

Gary Bush, financial adviser at the Potters Bar-based MortgageShop, comments: "The inflation figure is to blame for the 0.5 per cent increase in the Bank of England base rate today - well, that and the Bank being too cautious back in December 2021 when the increases should have been whole numbers like one to two per cent to truly hit the early signs of inflation. The London and South East property markets will slow to a grinding halt now I think. Any growth will be in the areas of the UK that still have cost-effective properties of small portions to incomes (North East/North West). Savers will ‘eventually’ benefit from this 0.5 per cent hike."